A court in Malaysia has paved the way for an Australian company to fire up its controversial rare earths plant in eastern Malaysia.

Lynas obtained permission for the facility in September, but activists took the case to court complaining that the environmental risks of the project were too great.

They wanted the court to grant a further injunction against Lynas's operating licence.

On Thursday morning, the court ruled that the environmental concerns were premature.

The decision was met with disappointment by the activists, who faced off with workers from the plant outside the high court in Kuantan.

A Lynas spokesman says there is now no injunction or stay stopping Lynas from operating the plant.

Malaysian opponents to the plant say the processing of rare earth ore imported from Australia, would release radioactive gases and solid waste like thorium, radium, lead and small amounts of uranium into the environment.

The federal opposition MP for Kuantan, Fuziah Salleh, who has led protests against Lynas for over two years, says the fight is far from over.

"I am disappointed because the public has decided that they would accept the plant to operate in our backyard," she told Asia Pacific.

"We will certainly bring this case of the Appeal Court, immediately file papers for the appeal court.

"And there is also another court case which is being referred to the Federal Court with regards to another judicial review regarding the detailed EIA (environmental impact assessment), which was not conducted on the plant."

Ms Salleh says the public will continue to appeal to relevant ministers and authorities.

The hearing of an application for a judicial review into the granting of the licence is expected in a few months.

Lynas shares were placed in a trading halt pending the court decision.